A microfinance bank (MFB) is simply a company or group of companies that is licensed by the Central bank of Nigeria (CBN) and other licensing institutions to provide financial and non-financial services to the public. Microfinance banks usually provide loans, securities (e.g. fund deposits and withdrawals) and local money transfers.
The amount of loan that a micro-finance bank gives depends on the density of cash-flow of both the business owner (i.e., the loanee) and the business. Loans which Microfinance banks give are categorized as “Unsecured”. Microfinance banks serve all classes of Nigerians including the employed, the under-employed, and unemployed.
This article will help us learn how to successfully start a micro-finance bank in Nigeria.
Steps to Start a Micro-Finance Bank in Nigeria
There are several processes that you have to undergo to acquire a license to start a micro-finance bank in Nigeria. One of them is to apply for a license.
To do this, you will apply to the Governor of the Central Bank of Nigeria (CBN) indicating the types of micro-finance bank that you or your organization is interested in starting.
The application should be followed by:
- Application fee of N50,000 for Unit Microfinance Bank. N100,00 for State Microfinance Bank, and N250,000 for National Microfinance Bank. This should be paid in bank draft or via e-payment channel in CBN name.
- Deposit the capital requirement of the Microfinance Bank stated above in a Microfinance Bank share capital account. After the license has been issued, this capital sum will be given to the promoters of the Microfinance bank with interest.
- Prove that the paid capital requirement in (2) is acceptable by the CBN and that it is not from an illegal or illegitimate source (i.e., stolen or laundered money).
- Get a detailed feasibility report.
- Obtain a certificate of capital information in the case of foreign start-up cash.
- Get a copy of your company’s memorandum and articles of association.
- You’re required to put out a letter of intent to pay for the subscribed shares of the micro-finance bank by its subscribers.
- Make a list of your potential shareholders including their addresses, that of their bankers, and the name of their bankers.
- Obtain particulars of the prospective board of Governors of your Microfinance bank.
After this stage, the CBN will evaluate the steps listed and documents and proceed to issue an Approval In Principle (AIP). The AIP is issued after the CBN has interviewed the potential owners and promoters of the Microfinance bank.
Also, the CBN issues the AIP if it is satisfied with the quality in 3 months receipt application. The microfinance bank can begin operation after the documents listed below are submitted by the promoters of the MFB to the CBN and these have been vetted and approved.
- A full copy of the shareholders register
- A valid copy of the share certificate of each shareholder.
- A Form CAC 2 i.e. return of allotment, put with the corporate affairs commission.
- Form of corporate affairs commission i.e. particulars of the board of directors.
- Memorandum and article of the association including the corporate affairs commission.
- Starting up a statement of affairs audited by an approved firm in the account department in Nigeria.
- Certified valid copies and original copy of the certificate of incorporation.
- One copy of the letter of offer and acceptance of employment by the leading management staff including the management team being confirmed by the CBN.
- Letter of undertaking to follow the rules and regulations governing the microfinance banks.
- A form of CAC describing the location and address of the head office and also the branches of MFB.
When all the steps above have been completed, the CBN will physically inspect the location and facility where the Microfinance bank would operate in. Once satisfied, the CBN will write to the MFB to resume operation.
The promoters have to take note of the following important information:
- For unit MFB, the Application fee is N50,000,
- For state MFB, the Application fee is N100,000 and
- For national MFB, the Application fee is N250,000 – 1 million
Also, Change of name fee for unit MFB is N20,000, N50,000 for state MFB and N100,000 for National MFB.
Also note that, if the CBN is not satisfied after inspection, it reserves the right not to issue a license to the MFB. After the license has been issued to the MFB by the CBN, there are some things that the MFB is not allowed to do. This is discussed below.
Limitations of Microfinance Banks in Nigeria
The MFB is not allowed to:
- Accept deposits from the public sector, except permitted.
- Engage in foreign transactions.
- Take part in foreign electronic funds transfer.
- Engaging in foreign corporate finance.
- Deal in real estate business.
- Deal in the land for the possible purpose.
- Funding for illicit activities e.g. gambling.
- Take part in any form of selling/ buying or renting, without first requesting and receiving approval from the CBN
Any MFB that performs any of the above transactions will have its license retrieved. This is regulated by provisions in the bank and financial institution act BOFIA in 1990.
Once you’ve carried out all the requirements listed above, then you are ready to start Microfinance bank after approval by the CBN.
The Microfinance bank is regulated by the CBN, which is the highest bank in Nigeria, it reserves the right to supervise, approve, and revoke any MFB that violates its orders or faults the rules. You should be really meticulous when starting a micro finance bank.
Feel free to drop your questions in the comment section on any area where you need more clarification. I will be in touch soon. One more thing To be on the safe side while contemplating to start your MFB, I think you should also check the reasons why Microfinance banks fail.